2025 401(k) Contribution Increases + Catch-up Amounts
Millan + Co., CPAs
Article Summary:
For 2025, the IRS standard 401(k) contribution limit is $23,500. Eligible taxpayers may contribute up to $23,500 to their 401(k) plan during the year.
Key points about the 2025 401(k) contribution limits:
Increase from 2024: This limit is an increase from the 2024 limit of $23,000.
Catch-up contributions: Individuals aged 50 and older can contribute an additional “catch-up” amount on top of the standard limit. Additional “catch-up” amounts are available for ages 60-63.
Applicability: The increase also applies to most 403(b), 457 and federal TRUST plans.
Understanding the latest IRS retirement contribution limits is crucial for maximizing your retirement savings strategy.
Let’s break down the significant changes coming to 401(k) contribution limits in 2025, including the recently announced base contribution increase and the new age-based catch-up provisions established by the SECURE Act 2.0.
Understanding the New Base 401(k) Contribution Limits
The IRS announced on November 1 that the base contribution limit for 401(k) plans will increase to $23,500 in 2025, representing a $500 increase from the 2024 limit of $23,000. This adjustment applies to:
- 401(k) plans
- 403(b) plans
- Most 457 plans
- The federal government's Thrift Savings Plan (TSP)
This increase reflects the IRS's ongoing efforts to help Americans save more effectively for retirement while accounting for inflation and increased living costs.
New Age-based Catch-up Contribution Increases
Standard Catch-Up Contributions (Age 50+)
For workers aged 50 and older, the standard catch-up contribution limit for 2025 will be $7,500 on top of the new $23,500 base limit. This provision continues to offer older workers the opportunity to accelerate their retirement savings as they approach retirement age.
Enhanced Catch-Up Contributions (Ages 60-63)
One of the most significant changes introduced by the SECURE Act 2.0 takes effect in 2025, specifically targeting workers aged 60 to 63. These individuals will be eligible to contribute either:
- $10,000 to their 401(k), or
- 150% of the standard catch-up contribution amount
whichever is greater.
2024 vs. 2025: Understanding the Changes
2024 Limits
- Standard contribution limit: $23,000
- Catch-up contribution limit (age 50+): $7,500
- Total maximum contribution (age 50+): $30,500
New 2025 Limits
- Standard contribution limit: $23,500
- Standard catch-up contribution (age 50+): $7,500 (on top of the new $23,500 base)
- Enhanced catch-up contribution (age 60-63): $10,000 or 150% of standard catch-up
- Total maximum contribution (age 50-59): $31,000
- Total maximum contribution (age 60-63): $33,500
Why These Changes Matter
Recent studies indicate that while only 15% of eligible workers currently make catch-up contributions to their 401(k)s, approximately 40% of Americans are behind on their retirement savings goals. The $500 increase in base contributions, combined with the enhanced catch-up provisions for ages 60-63, represents a significant opportunity for workers to boost their retirement savings during their peak earning years.
SECURE Act 2.0: The Foundation for Change
The SECURE Act 2.0, passed in 2022, laid the groundwork for these enhanced contribution limits. This legislation aims to:
- Expand retirement savings opportunities
- Provide greater flexibility for catch-up contributions
- Help Americans better prepare for retirement through age-specific provisions
Strategic Planning Considerations for 2025
For Workers Under 50
- Take advantage of the increased $23,500 base contribution limit.
- Consider ways to gradually increase contributions to meet the new maximum.
- Review budget and cash flow to accommodate higher contribution levels.
For Workers Age 50-59
- Maximize standard catch-up contributions ($7,500) on top of the new $23,500 base.
- Total potential contribution: $31,000
- Consider additional retirement savings vehicles like IRAs
For Workers Age 60-63
- Prepare to take advantage of enhanced catch-up provisions
- Budget for maximum potential contribution of $33,500
- Review overall retirement strategy to maximize this opportunity
FAQs About 2025 Retirement Plan Changes
How do these changes affect 403(b) plans?
A 403(b) plan, also known as a tax-sheltered annuity (TSA) plan, is a retirement plan offered by public schools, non-profit organizations (501(c)(3)), religious groups, and certain ministers. Similar to a 401(k), these plans allow employees to make tax-deferred contributions from their salaries to save for retirement, but they often have lower administrative costs and may offer different investment options focused on annuities and mutual funds.
What about 457(b) plans?
Governmental 457(b) plans will align with the new limits, with some unique features:
- The $23,500 base contribution limit applies
- The enhanced catch-up provisions for ages 60-63 will apply
- Participants maintain access to the special 3-year catch-up provision unique to 457(b) plans.
- Important note: Participants cannot use both the age-based catch-up and the special 3-year catch-up in the same year; they must choose one or the other.
How will the Thrift Savings Plan (TSP) be affected?
The federal government's Thrift Savings Plan, which serves federal employees and military personnel, will mirror the 401(k) changes:
- The new $23,500 base contribution limit applies.
- Federal employees aged 60-63 will be eligible for the enhanced catch-up contribution limits.
- Standard catch-up provisions remain available for those 50 and older.
- Total potential contribution of $33,500 for those aged 60-63.
Can I make catch-up contributions to multiple retirement plans?
While you can contribute to multiple retirement plans, catch-up contribution limits apply across all plans collectively:
- The total catch-up contributions across all qualified plans cannot exceed the applicable limit for your age group.
- If you have access to multiple plans, you can split your catch-up contributions between them as long as you don't exceed the total limit.
- The basic contribution limit ($23,500) applies separately to different types of plans.
Are employer matches affected by these changes?
- Employer matching contributions are not affected by the catch-up contribution limits.
- Employers can continue to match contributions up to their plan's specified limits.
- The overall contribution limit (employee + employer contributions) remains separate from catch-up provisions.
- Employer matches are based on your regular contributions, not catch-up contributions.
What about SIMPLE 401(k) plans?
A SIMPLE 401(k) plan is a retirement savings option specifically designed for small businesses with 100 or fewer employees. These plans are meant to provide a simplified retirement savings option with lower administrative costs for small employers while still offering many of the basic features of a traditional 401(k).
SIMPLE 401(k) plans have different contribution limits and rules:
- These plans maintain their own separate contribution and catch-up contribution limits.
- The enhanced age 60-63 provisions do not apply to SIMPLE plans.
- The standard annual contribution limit for SIMPLE plans is different from traditional 401(k)s.
- Employers are required to make either matching contributions of up to 3% of compensation or 2% non-elective contributions for all eligible employees.
- Consult with your plan administrator for specific SIMPLE plan limits.
Summary
The 2025 changes to retirement plan contribution limits, including the new $23,500 base limit and enhanced catch-up provisions, represent significant opportunities for retirement savers across all age groups. These increased limits and enhanced catch-up provisions offer valuable tools for strengthening retirement security.
We're Here to Help
Contact us to understand how these changes affect your specific situation and to develop a strategy that maximizes these new opportunities while maintaining compliance with all IRS regulations.
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